19/03 – BOE offers little for sterling bulls

GBP: Time is needed

EUR: Hoping for weakness elsewhere

USD: Can’t keep a good currency down

Sterling

Sterling has remained relatively quiet in the aftermath of the Bank of England meeting. In the round, this month’s meeting has confirmed that while we can make assumptions about the UK economy and the path of the recovery, the one thing that we cannot bring forward is time. That time will be needed to continue the vaccine program and recalibrate the trade economy to our new post-Brexit way of operating, and once those efforts are more entrenched then the Bank will feel happier in forecasting movements in interest rates and a resumption of ‘normal’ monetary policy.

One notable exemption was any language around negative interest rates which may mean that particular policy discussion has been put to bed.

Focus for sterling will now turn to the slowing of the vaccine program given supply constraints and whether any slowing lessens the chances of the scheduled reopening of parts of the UK economy.

Euro

With US bond yields rising and those in Europe looking distinctly soggy, EURUSD looks unlikely to recover the undervaluation gap that it is currently suffering from. European equities are also soft with lockdowns in Paris and other parts of France weighing on sentiment. This is a market that will see the euro rally likely only on weakness elsewhere.

US dollar

Despite this week’s Fed meeting there are still multiple reasons for USD strength and multiple for USD weakness. Overnight markets have focused on the former for now with rising bond yields in the US and fresh lockdowns in Europe highlighting the narrative that the USD cannot be sold from here either on growth or on risk grounds.

There will come a point wherein people believe that any created inflation in the US – without higher interest rates – is eroding the value of the USD compared to other currencies and will substitute out of the greenback. We are not close to that time however.

For now, the dollar looks to be in the driving seat, especially if the data continues to fit a narrative of US outperformance.

Elsewhere

Rising US yields and a stronger dollar is naturally having a negative effect on the emerging market space, with the Indian rupee the only currency in Asia to have gained on the month thanks to inflows for certain Indian stock offerings.

Oil prices have also sunk back overnight which won’t help the EM space but remains at elevated levels.

Market rates

Today’s interbank rates at 08:24 against sterling. Movement vs yesterday.

Euro€1.168 ↑
US dollar$1.394 ↑
Australian dollar$1.795 ↑
South African randR20.48 ↓
Japanese yen¥152.4 ↓

Have a great day and a better weekend.

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Jeremy Thomson-Cook

Jeremy Thomson-Cook

Jeremy has over 13 years experience working in the FX industry. As a specialist in political risk mitigation and currency hedging, he regularly advises clients on the day-to-day moves of the markets and the implications of fiscal and monetary policy on international businesses.